CEO Pay Unrestrained by 'Good Governance' Push

The string of corporate scandals and subsequent rash of reforms induced many companies to publicly embrace "good governance" practices. But few have taken the most essential step: cutting executive compensation.

In fact, in 2003 the median payout to CEOs in the S&P 500 jumped 27% from 2002 to $4.6 million, according to The Corporate Library (or TCL), a governance research firm. And though some companies have curbed stock-option awards, extra salary, bonuses and other stock awards have more than made up for those cutbacks.

For example, the median value of restricted stock granted to S&P 500 CEOs jumped 32% last year vs. 2002, according to Equilar, a compensation consultancy. Payouts under other types of long-term incentive plans rose 49% in 2003, and cash bonuses were up 19%.

In 2003, executive pay rose largely in tandem with the S&P 500, which jumped 26%. But the index's rally followed three years of sharply negative returns, a decline not matched by CEO salaries. According to TCL, CEO salaries went up about 11% in 2002, while the S&P 500 fell 23%.

"The fact that the market recovered somewhat has been a green flag to say, 'OK guys, it's payday again,'" said Paul Hodgson, a senior research associate at TCL.

Dick Grasso's $139.5 million pay package from the New York Stock Exchange is the most notorious payout in recent years. But at least Grasso could point to a successful track record of managing the exchange.

Harder to defend are the still-lavish compensation packages when companies and executives perform poorly. After recent proxy filings, companies that caught the eye of corporate watchdogs for having pay out of sync with performance included:

Viacom (VIA.B), which paid Chairman and CEO Sumner Redstone $35.5 million last year, a 4% raise from the year before even though the company's operating profits fell 21% in 2003 and its stock price underperformed both peers and the broader market.

SBC Communications (SBC), where Chairman Ed Whitacre received $24.8 million last year -- a 20% year-over-year raise -- despite the fact that the company's operating profits declined 25% and its stock fell 4%.

Bear Stearns (BSC), which paid James Cayne $39.3 million last fiscal year, up 32% from the year before, even as the company's stock underperformed many of its peers.

These companies joined chronic offenders such as PeopleSoft (PSFT) and Computer Associates (CA).